Is Amazon working on a smartphone?

The e-retailer may have one in development, suggests an analyst’s report.

The e-retailer's just launched tablet could be joined by a smartphone, if one analyst's report proves to be true.

E-retailing behemoth Amazon.com Inc. may be dialing up its own smartphone if an analyst report is accurate. Amazon.com may be looking for more ways to sell both digital content and tangible goods as consumers use their smartphones and tablets to make purchases.

A check on Asian suppliers suggests an Amazon smartphone could be ready for the fourth quarter of 2012, says Mark S. Mahaney, a Citigroup analyst, in a new report. Citigroup says Foxconn International Holdings, a Chinese manufacturer, is jointly developing a smartphone with Amazon.com.

“With the clear success of the Kindle e-reader over the past three years, and Kindle Fire possibly succeeding in the low-priced tablet market, we view this as the next logical step for Amazon,” Mahaney writes. “Amazon has set its eyes on the mobile, including tablet, media and product consumption, frontier.” Neither Mahaney nor Amazon responded to Internet Retailer inquiries. The Kindle Fire is Amazon’s first tablet, which went on sale Monday.

Mahaney’s report has provoked plenty of comment, although no consensus on what Amazon will do.

If the report proves accurate, Amazon may produce its own smartphone for both tactical and strategic reasons, says Avi Greengart, research director of consumer devices at Current Analysis Inc. “Tactically, it can sell more stuff,” he says, adding that consumers buy more music on their phones than they do on their tablets. Strategically, Amazon knows that consumers always have their phones with them. “If you want to build an ecosystem and compete with other companies like Apple, Google and Microsoft that have built ecosystems, then the one device you need is a phone,” Greengart says.

Greengart’s “ecosystem” is a closed environment within which all buying, selling, listening and viewing takes place. In Apple’s case, an iPhone owner is linked to music and video content within the four walls of iTunes. Media can be viewed on other devices within the system, such as an iPad or a Mac desktop computer.

Amazon clearly has broad ambitions, Greengart adds. “It is building a robust ecosystem of digital content and cloud services, and Amazon has to be aware that tablets are considered discretionary purchases but phones are necessities.”

Though Greengart does not rule out the possibility of an Amazon-branded phone, he says such a device could be offered but would face stiff competition. “The phone market is crowded and Amazon’s primary market, the United States, is carrier-dominated. Just because Amazon launched a tablet does not mean it will launch a phone, and if it does launch a phone there is no easy guarantee of success, particularly if it intends to compete on price, as implied by Mahaney.”

Consumers are price-sensitive when purchasing tablets because they pay full price for them, Greengart says. Wireless carriers often subsidize the cost of even the most advanced mobile phones to lock a consumer into a multiyear contract. “Even if Amazon can get a phone priced lower than the competition after subsidies there is not much room to maneuver. The iPhone 4 costs $99, and the iPhone 3GS is free” with a contract, Greengart says.

It could be, too, that Amazon has spotted an opportunity unique to the e-retailer that isn’t being fulfilled today, says Scot Wingo, CEO of ChannelAdvisor Corp., a company that helps retailers sell through online marketplaces. If an Amazon smartphone does appear a year from now, it probably will be because of smartphone market data Amazon has analyzed, he says. “Amazon is very data-driven,” Wingo says. Amazon has content, including products and digital goods, experience producing its own hardware, and the ability to connect with consumers, he adds. Amazon is No. 1 in the Internet Retailer Top 500 Guide and the Mobile Commerce Top 300.